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Equilibrium homophily in networks

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  • Boucher, Vincent

Abstract

I look at the equilibrium effects of homophily in network formation games having positive externalities. I show that very weak preferences for network effects (such as a preference for being part of a clique) may result in very high levels of homophily at equilibrium. I present an empirical procedure that allows an evaluation of the role of network effects on the observed level of homophily in the data. I apply my method to the formation of friendship networks in the USA. I show that network effects are small and have a negligible contribution to the observed racial homophily in friendship networks.

Suggested Citation

  • Boucher, Vincent, 2020. "Equilibrium homophily in networks," European Economic Review, Elsevier, vol. 123(C).
  • Handle: RePEc:eee:eecrev:v:123:y:2020:i:c:s0014292120300027
    DOI: 10.1016/j.euroecorev.2020.103370
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    More about this item

    Keywords

    Homophily; Network formation; Supermodular games; Approximate Bayesian computation;
    All these keywords.

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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